Could your supply chain let down your reputation?

(We're pleased to feature a guest article from Jon Williams, CSR and Sustainability Product Manager at Achilles, the leading Supplier Information Management firm).

Apple recently published the findings of an audit of its supply chain, which revealed a number of human rights and environmental breaches, including the use of illegal child labour by some suppliers. At a time when businesses are increasingly under public scrutiny and facing financial constraints due to economic conditions, this was a bold but necessary step.

It is essential to examine your supply chain rigorously and understand how it might impact your Sustainability/Corporate Social Responsibility (CSR) programme. If you were to find breaches in labour regulations, health and safety, environmental and industry regulations, what kind of impact would this have on your corporate reputation, share price or bottom line if made public? It is always better to identify issues yourself – it makes the implementation of addressing problems more straightforward, and you may well positively build your reputation despite the situation.

Looking at the impact from a CSR perspective, companies like Apple, with a complex or high risk supply chain, face the challenge of auditing many aspects of supply often across multiple countries. Its iconic reputation means that Apple faces greater public scrutiny which could have serious implications to its share price and reputation.

But follow-through is vital. Having publicly examined its supply chain, Apple will now be scrutinised to check its commitment to address the issues. Why is this so important? Because today’s consumers are more empowered than ever – think of social media - and are increasingly holding companies accountable for unethical behaviour. The instantaneous nature of services like Twitter and the trend towards bloggers and ‘citizen journalism’ means that a company’s failings can be broadcast throughout the globe in a matter of minutes, undoing a good CSR and sustainability standing in moments.

And the evidence is that despite initial concerns when corporate failings come to light, most consumers are willing to accept a company has faults – as long as they are presented openly and honestly, as in the Apple report. What they won’t tolerate however is a lack of action and intent to identify and implement a solution.

So no matter how tough the business climate becomes, failing to perform supply chain diligence, do rigorous audits as required, and address the issues is not an option – legally, ethically or in terms of reputation. A company can only address issues if it has full visibility and traceability of supply chain issues. By publishing the unaltered results of its audit, Apple is setting an example for the industry and challenging others to examine their operations to ensure compliance with international standards.

With approximately 80,000 employees, Apple is in a good position to monitor and test their supply chain. But the issues they document show some of the challenges in doing so. Many companies seek assistance in supplementing their supply chain knowledge by outsourcing the management of their supply chain information to specialist providers, who can support with dedicated teams to identify potential issues, assess all suppliers consistently and help organisations make contingency plans.

Without tackling head on the identified issues around suppliers, not only can a company’s reputation be severely tarnished, there can also be severe financial implications. We’ve seen with the ongoing horse meat scandal the financial impact on some of the food sector’s leading players, both retailers and manufacturers. In the Oil & Gas sector, BP’s share price plunged 13% after its handling of the Louisiana oil leak, which they subsequently blamed on faulty concrete sourced through their own supply chain.

Apple’s attempts at greater transparency through audits and public acknowledgement of the challenges it faces should be applauded – but standards will only improve if there is a concerted effort to improve performance throughout its supply chain. Simply ceasing to work with suppliers who utilise underage workers only displaces the problem and could lead to suppliers implementing new tactics of avoidance to conceal true practices from auditors.

As the global consumer becomes more sophisticated and aware, an organisation will only be seen as sustainable if its suppliers are equally responsible and sustainable. So any business that is serious about protecting their reputation and remaining financially stable should carefully evaluate that supply chain. A well-built supply chain can drive up performance and ensure long lasting relationships with key suppliers, all of which contributes to a reduction in non-compliance in areas such as human rights, safety, quality and the environment, and a better overall sustainability performance.

First Voice

Kathryn M Tominey:
01.05.2013 at 5:43 pm

When you farm out work to any 3rd party you are giving up control. No subcontractor will ever care as much about your warrenty or reputational concerns. This is especially.that case where the sub does not have the financial resouces to make you whole if they screw up due to incompetence, dishonesty or sloth.

If you, the organization at the top of the supply chain, does not exercise real quality control withyour own staff you have no business complaining when a foreign based sub sub contractor does not do the job. As President Reagan said “…Trust but verify..”

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